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January 29, 2013

Insurance Trounces Retirement in Small-Business Benefit Offerings

Medical, drug coverage and 401(k)s most popular benefit products

A little over half of small businesses offer insurance or retirement benefits to their employees, according to research released Monday by LIMRA. The organization found 52% of small business owners offer some combination of insurance or retirement benefits.

“The vast majority offer insurance only or both,” Kim Landry, a research analyst for LIMRA, told AdvisorOne on Tuesday. She said 23% of respondents offer both insurance and retirement benefits and 47% offer insurance only. Just 4% of small-business owners offer retirement benefits only.

The organization studied businesses with fewer than 100 employees. Data from the U.S. Census Bureau shows that 98% of U.S. businesses, or 35% of the work force, have fewer than 100 employees, according to LIMRA.

Landry said 401(k)s are by far the most popular retirement product, with 20% of respondents saying they offer them. Landry noted that 401(k)s become more common as the size of the small business increases. SEP and SIMPLE IRAs, which are specifically designed for small companies, she said, are offered by 8% of small business owners.

Among insurance benefits, medical and prescription drug coverage are overwhelmingly the most common. One-quarter of respondents offer dental and life insurance benefits.

LIMRA noted that at 47%, the number of small businesses that offer insurance benefits to employees is at the lowest level in 20 years. However, Landry stressed that the drop isn’t necessarily an indication that businesses are dropping coverage. “The small-business market has a high turnover rate,” she pointed out. The drop in the number of businesses offering benefits may reflect that volatility as businesses that did offer benefits close and new businesses decline to offer benefits.

LIMRA asked respondents if they had plans to add or drop benefits in the next two years and found “encouraging” results, Landry said. “One percent of small businesses that had insurance benefits said they would drop them,” she said. Those that offer retirement benefits were even less likely to say they planned on dropping benefits in the next two years.

LIMRA is developing a second phase of the survey that examines the Affordable Care Act’s impact on small-business owners, Landry said. Noting that complete data is not available yet, she said preliminary data shows small-business owners are “not optimistic” about the effect of the health care act. “They expect a negative impact, although they admit they don’t know a lot about it,” she said. Ultimately, small-business owners are waiting to see how the Act will affect them. “They’re not in a rush to drop medical benefits,” she said.

Women who own businesses were far less likely than men to offer benefits. LIMRA found that while half of businesses owned by men provide insurance benefits to their employees, just 37% of those owned by women do the same. One reason for this, according to LIMRA, may be that women-owned businesses tend to be smaller and produce less revenue.

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